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Saudi Arabia’s new oil minister more fully behind expedited IPO of Saudi Aramco

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Saudi Arabia’s new Energy Minister, Prince Abdulaziz bin Salman speaks during a panel discussion at the 24th World Energy Congress in Abu Dhabi, United Arab Emirates September 9, 2019.

Satish Kumar | Reuters

Saudi Arabia’s new energy minister is expected to be fully behind the expedited IPO of the kingdom’s oil company, replacing a highly-regarded minister whose downfall may be that he was too slow to embrace the Saudi Aramco offering and other reforms.

Oil markets were surprised over the weekend when King Salman replaced Energy Minister Khalid Al Falih with his son, Prince Abdulaziz bin Salman, older half brother of Crown Prince Mohammed bin Salman and minister of state for energy affairs since 2017.

“The long tradition of the oil minister as a technocrat non-royal has been broken, and the best theory is that departing minister Kalid Al Falih was too resistant to the pace of change pursued by Crown Prince Mohammed Bin Salman,” wrote Paul Sankey, energy analyst with Mizuho.

Aramco CEO Amin Nasser said Tuesday that the company is ready to list on the Saudi stock exchange “very soon” though he declined to say how much of Aramco would be listed on the Tadawul exchange or when the company would list internationally.

Prince Abdulaziz, a respected energy official in his own right and former deputy energy minister, is just one of a half dozen Saudi energy ministers, going back to the early 1960s. The new minister was at the World Energy Congress in Abu Dhabi Monday, and he will be participating in a Thursday meeting there between OPEC and Russia on oil production.

Prince Abdulaziz made it clear Monday he will support the production cuts agreed to by the so-called ‘OPEC plus’ group. The cuts have largely been shouldered by Saudi Arabia, and while they did drive prices higher, some speculate, perhaps not high enough to help the IPO valuation.

The public offering of Aramco has been seen as a cornerstone of the crown prince’s Vision 2030 plan to transform the Saudi economy and make it less dependent on fossil fuels. Sources say that al Falih was not always on the same page as MBS on some policy and did not fully embrace the public offering, which has recently been accelerated.

Saudi’s crown prince is said to be looking for a $2 trillion valuation for Saudi Aramco, but some bankers have found the value to be closer to $1.5 trillion, according to industry sources. The gap in those valuations would narrow if oil prices were to rise.

The appointment isn’t expected to have much impact on oil policy in the near term, but some analysts say the move consolidates control over the energy sector in the hands of the crown prince, who is known as MBS.

“Abdulaziz bin Salman probably has no intention of changing Saudi Arabia’s oil stabilization policy for now. The production restraint policy and working with OPEC and Russia is key to Riyadh’s efforts to lift oil prices and generate more revenue for the state. It is also a key part of his brother’s plans to bolster the valuation of Aramco. The long-term oil market strategy is less certain given the changes in Saudi Arabia’s decision-making structure,” wrote Ayham Kamel, Eurasia Group practice head, Middle East & North Africa.

Industry sources said former energy minister Al Falih may have become too powerful, with a rock star like persona in the energy world. He was an energy minister who had responsibility for broad policies, including OPEC production quotas. He was also chairman of Aramco, where he had his finger on the production operations, pricing and exports, until he was suddenly replaced in that position.

The shakeup in the kingdom’s energy sector became more apparent last week, when Al Falih was replaced by Yasir al-Rumayyan as chairman of Aramco. Al-Rumayyan is head of the Public Investment Fund, the country’s primary sovereign-wealth fund, which will invest the proceeds of the Aramco offering. Last month, the king had restructured the energy ministry by giving a new ministry oversight of some of its operations, including both mining and industry.

Al Falih was also seen as hard-driving, a much different personality than Prince Abdulaziz, who has worked behind the scenes at OPEC gatherings and elsewhere.

“He’s known as a consensus builder. I see him playing that role at OPEC,” said Helima Croft, head of global commodities strategy at RBC.

The prince is also expected to stand behind his brother in pushing his reform agenda. “This team is absolutely in sync with the position of the crown prince. I think they’re absolutely in sync with his vision,” she said.

Croft said the prince has been involved in renewable energy and in reducing energy intensity. “He’s championed the domestic energy reform agenda. It’s a very important effort domestically,” she said. “He’s given his life to the energy sector, to the ministry. He is the ultimate technocrat.”

Al Falih’s forceful personality was surely a benefit when he helped forge the relationship between OPEC and Russia and other non OPEC members. The collaboration did drive up prices, from depressed levels. As Saudi minister, Al Falih’s voice has been the most closely watched and authoritative, when it came to prices and production.

Russia’s Energy Minister Alexander Novak, Saudi Arabia’s Energy Minister and OPEC conference president Khalid al-Falih, and OPEC Secretary General Mohammad Barkindo attend a meeting of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producing countries in Vienna, Austria, May 25, 2017.

Leonhard Foeger | Reuters

Analysts said oil prices were lifted Monday on the fact that Prince Abdulaziz committed to maintain the production cuts. But there were also new claims from Israel Monday that Iran has a secret nuclear facility.

Despite the production cuts, OPEC plus has not been able to consistently drive prices much higher because of increasing competition from the U.S. and other producers who keep adding oil to the world market. Brent crude futures gained $1.31, or 2.3%, to $62.58 a barrel Monday, while U.S. West Texas Intermediate (WTI) crude futures rose $1.33, or 2.4%, to $57.85 a barrel. Brent is trading in a range it has been locked in since early August and is well off its 2019 high of more than $74 per barrel.

Bank of America Merrill Lynch Middle East strategists said it appears there will be policy continuity, following the appointment. “Beyond the immediate-term, there could be potential for greater focus on supporting oil prices. However, global energy supply and demand dynamics remain challenging,” noted the strategists. “The continuing Iran nuclear crisis may still eventually boost geopolitical risk premium.”

The anticipated offering for 5% of Aramco would be the world’s largest initial public offering, and efforts have progressed to the point, where J.P. Morgan could soon be named lead banker, sources told CNBC. The company is expected to follow this year’s local listing on the Tadawul exchange, with an international IPO next year, though no decision has been made on which exchange will host the listing, sources said.

U.S. President Donald Trump, speaks with Mohammed bin Salman, the Kingdom of Saudi Arabia’s deputy crown prince and minister of defense, left, in the Oval Office of the White House in Washington, D.C., U.S., on Tuesday, March 14, 2017.

Mark Wilson | Pool via Bloomberg

Kamel said the most important takeaway from the changes is that MBS appears to be “doubling down on his vision of transformation and diversification.”

“Mohammad bin Salman has probably come to believe that the change momentum might have slowed down in the last 12 months. The personnel changes are only part of a broader set of changes designed to revive the vision,” he wrote.



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Roku could fall another 30% before finding a bottom, chart suggests

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The streaming wars may have claimed a new victim.

Roku shares plummeted nearly 30% last week, its worst weekly performance stretching to its 2017 IPO.

The streaming platform stock was pummeled Friday after Pivotal Research slapped a sell rating and $60 price target on it, fearing a rush of competition in the space. It was crushed days earlier after CNBC owner Comcast announced it would offer a free streaming box to its internet customers.

It could get even worse, according to Craig Johnson, chief market technician at Piper Jaffray.

Roku has “violated the uptrend support line off those April lows of this year. You’ve got some support that comes in at $113. But purely based upon the charts, your best support comes in all the way back down at the 200-day moving average. So you can see the stock trade back down to $81, maybe even $75,” Johnson said Friday on CNBC’s “Trading Nation.”

A move down to $75 marks 30% downside from current levels. It has not traded at that price since May.

“The risk/reward isn’t favorable. Even though the stock is up, it has sold off quite a bit in here recently. I still think you got about 30% downside and maybe a relief rally of 7% upside, so I’d be selling into this move,” said Johnson.

Quint Tatro, founder of Joule Financial, does not see Pivotal’s note on Roku as the stock’s death knell.

“Obviously, the stock got way overheated, trading 25 times sales, but [Pivotal’s] rationale regarding losing market share I don’t agree with. You have to understand, this is a cord-cutting product so their whole rationale is that the cable companies are going to offer their own device for free in order to compete. I’m a Roku user. I own six of them in our home and office. I have not had cable for years so I would not switch to a cable device,” Tatro said on the show.

Tatro says a pullback in Roku’s share price to 14 to 15 times sales, around $100, would make him a buyer. Roku would need to fall 7% from Friday’s close to get to that level.

Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and CNBC.com.

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The market rotation this month may have been driven by a technicality

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A trader works at the New York Stock Exchange in New York.

Wang Ying | Xinhua News Agency | Getty Images

What exactly happened during the “once in a decade” stock market rotation earlier this month that rocked investors? It might’ve just been a one-off technical move and not based on fundamentals.

A huge rotation out of momentum into value names took place suddenly last week. Many read the phenomenon as a warning sign as stocks with superior growth have led the market’s bull run in recent years and said a rebound in interest rates was the catalyst. However, the reversal in momentum, which seemed to abate this week, could be explained by a sudden stop in tax loss harvesting, some on Wall Street said.

The idea is that investors often sell losing stocks to lower their tax bill from the capital increases, a technical move that’s quintessential of a momentum trade — chasing winners and dumping losers. The amount of such activity might have decreased significantly last week due to speculations the Trump administration would pass a bill to reduce capital-gain taxes, therefore reducing the incentive to sell their losers.

“It’s quite possible some of the dominant robo advisors could have assumed that the U.S. administration would indeed follow through with its proposal on Sept. 9, and decided to change their optimization to take this into account,” Barclay’s head of equity derivatives strategy Maneesh Deshpande said in a note on Wednesday.

President Donald Trump earlier this month floated a proposal to tie capital gains taxes to the inflation rate, which could lower the taxes investors pay on profits from selling assets. He eventually ruled out such a plan on Sept. 11. But the discussion around the proposal last week coincided with the change in stock leadership that shocked many investors.

Tax loss harvesters might have stopped selling losers and adding winners on the prospect that capital-gains taxes would go down, which could make tax loss selling less beneficial. Such a change could have caused the downturn in momentum due to less selling of falling stocks and less buying of rising names.

The amount of active tax loss harvesting has ballooned over the years as robo-advisers, which automatically allocate assets in a tax efficient way, gained popularity on Main Street. Robo-advisers now manage about $1 trillion assets, up from $240 billion in 2007, according to Barclays.

“Of course, it is also entirely possible that some other investors would have put on the trade in anticipation of such a proposal,” Deshpande said.

The iShares S&P 500 Value ETF hit its highest level since January 2018 on Sept. 11 as the rotation hit its pinnacle.

Value, cyclical companies with low prices relative to earnings and book values tend to be sensitive to economic growth. However, embracing the group without a material change in the economy doesn’t make a lot of sense, analysts warned.

“Absent an improvement in underlying economics, we believe that the recent shift in leadership is unlikely to persist,” Jonathan Golub, chief U.S. equity strategist at Credit Suisse said in a note Monday.



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‘Game of Thrones’ ends run with best drama award, 59 total Emmy Awards

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D. B. Weiss (C, speaking), David Benioff (3rd L) and cast and crew of ‘Game of Thrones’ accept the Outstanding Drama Series award onstage during the 71st Emmy Awards at Microsoft Theater on September 22, 2019 in Los Angeles, California.

Kevin Winter | Getty Images Entertainment | Getty Images

Despite mixed fan and critic reactions to the final season of “Game of Thrones,” the eight-season epic took home the top prize in the drama category at the Emmy Awards on Sunday.

Closing out the 71st annual television awards ceremony, David Benioff and D.B. Weiss thanked creator George R. R. Martin for entrusting his book series to the young producers more than a decade ago and praised the cast and crew for their work on the program.

Since 2011, HBO’s “Game of Thrones” has garnered 160 Emmy nominations and taken home 59 prizes for everything from acting and editing to special effects and sound mixing.

On Sunday, the program earned two Emmys, one for outstanding supporting actor, which went to Peter Dinklage for his portrayal of Tyrion Lannister, and one for outstanding drama.

Earlier in the month, “Game of Thrones” won 10 additional awards during the Creative Arts Emmy ceremony.

“Game of Thrones” final award tally falls short of the 67 Emmys that “Saturday Night Live” has accrued over its 44 seasons. “SNL” earned two statues on Sunday, one for outstanding variety sketch series and one for outstanding directing.

The final season was widely criticized by fans who felt the pacing and its treatment of previous character developments were not up to par. Still, the show continued to have record-breaking viewership.

Each episode, save for one, topped viewer counts from the season seven finale, which was the series high prior to season eight’s release.

Disclosure: Comcast is the parent company of NBCUniversal and CNBC.



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